Academic journal article The Journal of Consumer Affairs

Relationships among Information Search Activities When Shopping for a Credit Card

Academic journal article The Journal of Consumer Affairs

Relationships among Information Search Activities When Shopping for a Credit Card

Article excerpt

Using data from the 1997 University of Michigan Survey of Consumers, researchers investigated consumers' information search and the potential interdependency among search activities, using credit cards as a case study. The authors find that consumers have diverse patterns of information search that cannot be captured by a global measure or a few single measures of search and that strong interdependencies among some search activities exist.

American consumers are using credit cards more than ever. In 1998, a total of 429.2 million VISA and MasterCards were in circulation (Federal Reserve Board 1999). Credit card issuers mailed 2.87 billion solicitations in 1999 (BAI Mail Monitor 2000), and the number of credit cards per cardholder rose to 4.1 credit cards per person (Nilson Report 1998). Between 1991 and 2000, consumers' outstanding revolving credit grew from $247 billion to $610.7 billion (Federal Reserve Board 2000; Yoo 1998).

Currently, over 6,800 depository institutions issue VISA and MasterCard credit cards and independently set the terms and conditions of their plans (Consumer Reports 1998; Federal Reserve Board 1999). Credit card issuers are competing by waiving annual fees, providing enhancements, and since the early 1990s, lowering interest rates. This aggressive competition has resulted in widening the variety of credit card choices for consumers.

However, more choices do not always mean that consumers are better off. Consumers will be able to make a right choice only when they evaluate the terms and conditions of different credit card alternatives. To help consumers make a more informed credit card choice, Congress passed the Fair Credit and Charge Card Disclosure Act in 1988 (D'astous and Miquelon 1991; Federal Reserve Board 1994). This act amended the Truth in Lending Act to expand disclosure requirements for applications and solicitations mailed to consumers for credit cards, thereby making consumers' comparison shopping easier. Other legislative changes have also been considered, either alone or as part of other legislation, such as bankruptcy reform.

Despite the well-acknowledged role of information in assisting consumers' choice, research on understanding consumers' information search behavior when choosing a credit card is very limited (Lee and Hogarth 1998). To address this issue, this study investigates how consumers search for information when choosing a credit card. Specifically, using data from the 1997 University of Michigan Survey of Consumers, this study explores consumer's information search patterns when shopping for a credit card. The insights gained from this analysis will give guidance to more effective ways of helping consumers engage in search activities, in general, and search for credit cards that best fit their needs, in particular.

This study also contributes to the literature on information search. The difficulty of measuring consumer's information search behavior has been long acknowledged (Beatty and Smith 1987; Newman and Lockman 1975; Newman and Staelin 1972; Wilkie and Dickson 1985). Some studies have developed single-items that measure one aspect of search behavior, while others use aggregate measures of search. Furthermore, information search activities might be interdependent (Beales, Mazis, Salop, and Staelin 1981; Mazis, Stealin, Beales, and Salop 1981; Price, Feick, and Higie 1987; Smith 1993), but little research has been done to examine any potential interdependency. This study improves understanding of information search behavior by investigating interdependencies among information search activities.

BACKGROUND

Financial institutions issue VISA and MasterCard credit cards and independently set their own prices, lending terms, and conditions of their plans (Federal Reserve Board 1999). Close to 10,000 other institutions act as agents for card-issuing institutions. In addition, two large nonbank firms, American Express and Novus, issue independent general-purpose credit cards to the public. …

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